* The Russell Midcap® Index is an unmanaged index comprising the 800 smallest companies in the Russell 1000® Index. The Lipper Multi-Cap Core Fund Index measures the performance of the 30 largest mutual funds that invest in a variety of capitalization ranges without concentrating 75% of more of their equity assets in any one market capitalization range over an extended period of time, as determined by Lipper, Inc. You should note that the Westport Funds are professionally managed mutual funds while the indices are unmanaged, do not incur expenses and are not available for investment.
- Performance data of the Class R shares of the Westport Fund reflects certain waivers and expense Reimbursements. Without such waivers and reimbursements, performance would have been lower.
- The Total Annual Fund Operating Expenses for Class R Shares of the Westport Fund for the fiscal year ended December 31, 2014 were 1.23%. “Total Annual Fund Operating Expenses” include shareholder servicing fees. During the fiscal year ended December 31, 2014, the Class R shares of the Westport Fund paid shareholder servicing fees equal to 0.13%. Total shareholder servicing fees and “Total Annual Fund Operating Expenses” in fiscal 2015 may be more or less than the amount paid in fiscal 2014. Westport Advisers, LLC has also contractually agreed to waive a portion of its advisory fees and/or assume certain expenses so that "Total Annual Fund Operating Expenses" do not exceed 1.50% for any class. The Adviser has agreed to maintain these expense limitations with regard to each class of each Fund through April 30, 2016. See the Funds’ prospectus for additional information regarding the Funds’ expenses.
The performance data quoted represents past performance; past performance is not indicative of future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The Fund’s current performance may be lower or higher than the data quoted. Investors may obtain performance information year- to-date the following business day and to last month-end, within 7 business days, at www.westportfunds.com.
Portfolio Review
Economic growth in the first quarter of 2015 slowed with activity retarded by harsh weather in the Northeast and Midwest, a rapid strengthening of the dollar, especially against the Euro, and a dramatic drop in oil prices. Continued easy monetary policy from the Federal Reserve and further easing by the European Central Bank and the Bank of Japan, supported U.S. equity markets with the Standard & Poors 500 Index (“S&P 500”) returning 0.95%, the Russell Midcap® Index 3.95% and the Russell 2000® Index 4.32% in the first quarter of 2015. The return from the S&P 500 was depressed by the strengthening of the dollar against the currencies of trading partners, which reduces the earnings of many American multinational corporations. The smaller companies that populate the other two indices generally have substantially less international exposure.
The return on the Westport Fund Class R shares lagged the Russell Midcap® Index’s return by 221 basis pointsi for the first quarter. There were no major problems for individual portfolio holdings with 25 of the Westport Fund’s 36 holdings at quarter end providing a positive return. The largest price decline at 16%, which cost 28 basis points, was recorded by FEI Company (FEIC, Financial) (electron microscopes) on a lowered 2015 earnings forecast even though the need to make measurements at the molecular level is growing for a number of scientific applications. The three primary negative contributors to quarterly results were: (1) Precision Castparts Corp. (PCP, Financial) (complex metal components) – the company’s share price declined 13% and subtracted 57 basis points from performance, also on a lowered earnings forecast; (2) the Producer Durables industry sector - its return for the Westport Fund was 90 basis points below the return this sector provided to the Russell Midcap® Index. Nearly all the shortfall is accounted for by the earnings miss by the FEI Company and the pressure from the anticipated effects of slower domestic economic growth and the strengthening of the dollar on the earnings outlook and the shares of the portfolio’s two industrial distributors – W.W. Grainger, Inc. and MSC Industrial Direct Company, Inc. - Class A shares; and (3) the Healthcare industry sector – it added 81 basis points to the Westport Fund’s results but this was 63 basis points less than this sector’s contribution to the Russell Midcap® Index. A number of midcap pharmaceutical related companies in the Russell Midcap® Index were participants in merger activity and restructuring. They were not present among the Westport Fund’s portfolio holdings due to the unattractive valuations.
Westport Fund WPFRX as of March 31, 2015
The two largest positive contributors to first quarter 2015 performance were Ross Stores, Inc. (ROST, Financial) (discounted apparel and home goods) at 36 basis points and Charles River Laboratories International, Inc. (services and tools for drug development) at 34 basis points. Three other portfolio holdings each contributed 29 basis points to quarterly performance and two of these sell health care or medical products.
During the quarter three holdings left the portfolio, with takeovers completed for International Rectifier Corp. and PetSmart, Inc. while Trimble Navigation Limited was removed on a valuation basis. During the quarter a position was initiated in Mohawk Industries, Inc. (“Mohawk”). Mohawk (MHK, Financial) has expanded from a manufacturer with a primary focus on carpeting to a company whose current product offerings include rugs, carpets and tiles, along with laminate, wood, stone and vinyl flooring. During the quarter Mohawk announced the acquisition of a European company that manufactures sheet vinyl with a focus on luxury vinyl tiles. This new product is gaining acceptance in both the United States and Europe. Expanded offerings and increased volumes have enabled Mohawk to improve margins over time, directly enhancing its profitability. The latest acquisition should support the trend.
Since inception seventeen and a quarter years ago the Westport Fund Class R shares average annual return of 11.05% has outperformed the Russell Midcap® Index by 145 basis points per year and the Lipper Multicap Core Index by 446 basis points per year.
Investors should consider the investment objectives, risk, and charges and expenses of The Westport Funds carefully before investing; this and other information about the Funds is in the prospectus, or summary prospectus, which can be obtained by calling 1-888-593-7878 or at our website www.westportfunds.com. Read the prospectus or summary prospectus carefully before you invest.
The views expressed and any forward-looking statements are as of the date of the publication and are those of the portfolio managers and/or the Advisor. Future events or results may vary significantly from those expressed and are subject to change at any time in response to changing circumstances and industry developments.
There are special risks associated with small and mid-capitalization issues such as market illiquidity and greater market volatility than larger capitalization issues.
i Basis Point is a unit that is equal to 1/100th of 1% and is used to denote the change in a financial instrument.
Portfolio composition is subject to change at any time and should not be considered a recommendation to purchase or sell a particular security. On March 31, 2015, the following securities comprised these respective percentages of the Westport Fund: FEI Company (1.8%), Precision Castparts Corp (4.5%), MSC Industrial Direct Company, Inc. – Class A (1.8%), W.W. Grainger, Inc. (1.7%), Ross Stores, Inc. (3.9%), Charles River Laboratories International, Inc. (2.0%), International Rectifier Corp. (0.0%), PetSmart, Inc. (0.0%), Trimble Navigation Limited (0.0%), Mohawk Industries, Inc. (0.5%).
